Account Reconciliation Checklist

The major rule of reconciliations is that there is no account that cannot be reconciled. Inappropriately we did not say ‘easily’ – sometimes it is very difficult, often really difficult - but usually means the information required is difficult to attain, with all info available it is always achievable. This begs an assessment of whether the profit surpasses the price or whether the time is worth the effort or whether the exercise will be so troublesome that it is not worth the consequence on the accounts. We have all heard the saying that if an account is off by $1, it could be a $1,000,000 error debit and a $1,000,001 error credit and there is no guarantee that they would not remain to completely different accounts. The problem is that even if the account balances there could be mistakes – reconciliation does NOT guarantee accuracy, still, it does increase the possibility that it is accurate. The second rule is that you must have all the info necessary to make the matches to eradicate the transactions that have been dealt with. However, you can get most of it right and it comes down to a matter of judgement. Types of Reconciliation’s are, basically, four kinds of reconciliation.

1.Within the account itself. For instance, Prepaid Expenses. The account functions as a holding pen on the Balance Sheet for items prepaid and are transferred out when paid. There are typically 2 sources of entries; one arises when the expense is raised in the suitable period. For instance: Rent for the current month. The other when the expense is paid. This method caters for the essential to match the expense to the period, no matter when the expanse is paid. If paid in the suitable month it is a wash in the Prepaid Expense account, if not it is mechanically carried on the balance sheet properly, no matter when it was actually paid. Situations that are covered by this procedure include:

• Monthly recurring expenses
• Annual payments
• Advance payments of all types

Still, this kind of reconciliation calls for an amortization of amounts posted into the account, leaving a balance as yet unallocated. The best procedure to deal with this is to renovate what must happen and compare it with what has happened.

2. with an external account.

2 sub-types:

2a. Bank Accounts Bank accounts warrant special mention. Each firm has some. Bank accounts are allegedly under our control BUT the bank does it their way, it is maintained by the bank. We will make modifications in our account to imitate the external items. In the case of the bank account, we make entries in our books, in the form of deposits and payments, still, there are items that we might not have introduced that appear on the bank statement that we require to procedure through our GL account.

The reconciliation will reflect 2 types of difference:

1. Outstanding items such as deposits and payments that are in the GL but have not yet hit the bank

2. Items that have been managed through the bank but we have not processed through the GL

The first, outstanding, will typically automatically adjust when the check is presented - unless it is lost or goes stale. The second requirements to be entered into the GL or it will cause a permanent difference between the two accounts (GL and Bank Account).In recent times there are many ways that items are managed through the bank that might not be in the GL. Wires, ATM cards, P-cards etc. Moreover, the advent of ACH has resulted in extra work being required to reconcile bank accounts.

2b. Other External Accounts Circumstances that are covered by this method include:

• Medical scheme suppliers
• 401k accounts
• Insurance carrier accounts
• Accounts Payable (Vendor account)
• Accounts receivable (Customer account)

It would remain nice if the external 3rd party were supportive in all cases. Still, each company does it their way. Consider a vendor’s account. They pledge transactions and we receive the information and respond through handling the costs or expenses into our system. Yet, we also initiate some transactions – chargebacks, returns and payments.

There are 2 methods of maintaining accounts payable:

• Open item
• Balance forward

3. with another account

For instance, inter-company accounts. These are the nastiest from the point of view that they are prone to mistake, typically because they need continuous reconciliations to keep them in sync. There will be outstandings on both sides and these will result in permanent differences unless the opposite side is familiar.

Reconciliations need a list of initiated transactions which have towards remained outlined to the other side or managed on the other side. One method of dealing with this is to have two accounts each firm or division having an account for the items they initiate and one that the other side pledges. Still, the result will always net to the same, whether you use I or 2 accounts.

Sometimes firms will have two accounts, one for transactions that they initiate and one for transactions that they respond to (the other companies ‘initiated’ account).This sometimes make simpler the situation.

4. Control account: In this type a GL Control account balance is approved with the total of the individual accounts in the sub-ledger. Reconciliationaccounting business give you consist and precise work which can be easily used for the benefits of the decision-making desires.

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